The once-edgy brand has lost a third of its market value in
the past year and is grappling with falling store sales in
Europe and the U.S. While the retailer blames the economy for
its woes, brand consultants say Abercrombie has failed to change
with the times. Today’s teens are underwhelmed by the half-naked
models and blaring, dimly lit stores. And they’re less inclined
to wear Abercrombie’s uniform of denim and graphic Ts.

Abercrombie must recapture its cool at home or risk
undermining a six-year-old global expansion, said Allen Adamson,
a managing director at brand consultancy Landor Associates.

“The trick for fashion brands is how to keep the core edgy
and hot,” said Adamson, who has worked with clients including
PepsiCo Inc. and Procter & Gamble Co.

Abercrombie’s U.S. revenue has slipped 2.5 percent this
year and the retailer is bracing for same-store sales declines
in the second half. The slide comes as rival American Eagle
Outfitters Inc., which carries lower-priced, more-wholesome
styles, is boosting same-store performance. Falling sales
prompted Abercrombie to shutter 71 U.S. stores in its most
recent fiscal year.

Abercrombie is counting on growth overseas, where it opened
47 locations in its most recent fiscal year, and its styles
remain fresh and popular with many teens. Still, international
same-store sales plunged 26 percent in the second quarter. While
Europe’s economic woes played a part, some new stores stole
sales from existing locations, according to the New Albany,
Ohio-based company.

Trading Discount

Abercrombie is trading at a 5.3 percent discount to the
Standard & Poor’s 500 Retailing Index on a price-to-earnings
basis, down from more than double the index’s valuation in April
2010. American Eagle trades at a 10 percent premium to the
index, while teen action-sports retailer Zumiez Inc. trades at a
35 percent premium.

“There’s no personality anymore,” said Martin Lindstrom,
author of “Buyology: Truth and Lies About Why We Buy.” “The
pipeline of coolness is disappearing and once it dries up, then
they will dry up.”

It’s up to 68-year-old Chief Executive Officer Mike
Jeffries, who made Abercrombie cool, to connect with the new
generation, Lindstrom said.

Abercrombie declined to comment for this story through
spokeswoman Mackenzie Bruce and wouldn’t confirm Jeffries’s age,
which was listed in public records.

Jeffries Turnaround

After taking the helm in 1992, Jeffries turned a chain that
originally made safari and camping gear for the likes of
Theodore Roosevelt and Ernest Hemingway into a teen emporium
where sex met Ivy League. He used Abercrombie’s reputation for
quality to charge more for youthful styles, recruiting all-American teens and college-aged kids to model and work as
salespeople. Risqué quarterly catalogs enraged religious groups.
In 1999, the boy band LFO paid homage with its top-10 song
“Summer Girls,” which included the lyrics: “I like girls that
wear Abercrombie & Fitch / I’d take her if I had one wish.”

The Jeffries formula worked from 1995 into 2008, when the
company boosted sales more than 20-fold and net income more than
56-fold. Then the world changed. The downturn made it hard for
Abercrombie, long an aspirational brand, to keep selling $70
jeans when similar styles could be purchased elsewhere for $40,
and Abercrombie’s customers began moving on.

Today’s teens are “radically different” from other
generations, including Millennials now in their 20s, because
they are rejecting uniforms, according to Marcie Merriman,
founder of retail and brand strategy consultancy PrimalGrowth in
Columbus, Ohio.

Generation C

Dubbed Generation C -- for creative and connected -- they
have a bevy of clothing options thanks to the boom in fast-fashion from Forever 21 Inc. and Hennes & Mauritz AB’s H&M, said
Merriman, who has consulted for Jack Daniels and Nike Inc. and
is a former director of brand planning and strategy for Limited
Brands Inc.’s Victoria’s Secret. Gen C also has developed a more
individual style from the Web and social media, she said.

Abercrombie must “look at ways to tie in with this
creative class in a way that their brand will continue to
resonate,” Merriman said. “They’re positioned well to take
advantage of this group’s desire to be rebellious and indie and
different, because that’s what the brand is about, but right now
the product mix doesn’t communicate that or facilitate it.”

American Eagle

American Eagle, which generated comparable-store and online
sales growth of 9 percent in its second quarter and 17 percent
in the first, is scoring with such fashionable items as
camisoles with Peter Pan collars, pleated chiffon blouses and
college-team Ts. By contrast, Abercrombie continues to sell a
uniform, such as a $30 graphic T proclaiming: “She wears flip
flops seven days a week, she loves late nights & early mornings,
she’s an A&F girl.”

Jeffries told analysts and investors earlier this month
that the company is working to improve its supply chain so that
it can chase fashion trends more quickly.

Merriman says the brand also needs to move beyond hot
models to resonate with a cohort looking for a deeper message,
such as the altruism conveyed by Toms shoes, which donates a
pair to the needy for every one purchased.

“Abercrombie is still running an offense which is a huge
banner of a bare-chested guy with a cute girl who’s not wearing
enough clothing,” said David Maddocks, a former chief marketing
officer for Nike’s Converse sneakers label, who now runs a
lifestyle brand consulting firm based in Portland, Oregon.
“It’s vacuous, there’s no core idea there anymore and people
want the richness that comes with real authenticity.”

New Experience

Abercrombie needs to create a new and exciting store
experience because teens text and share about stores and
products they like, Lindstrom said.

They spend “at least 45 percent of the time on the cell
phone and interacting with people around them on what they
should buy and what they shouldn’t buy,” he said. “It’s a
generation that wants to share opinions and likes opinionated
brands, and neither are present in this store.”

Not that Abercrombie is standing still. Even as it shutters
namesake stores, the retailer is expanding a new concept called
Gilly Hicks. Described in filings as the “cheeky cousin” of
Abercrombie & Fitch, the chain was developed to sell underwear
and pajamas to women ages 14 to 35 with an “All-American”
style inspired by “the free spirit of Sydney, Australia.” With
18 stores in the U.S. and seven internationally, it’s faring
better than the shuttered Ruehl concept, introduced in 2004 to
capture 22- to 35-year-olds.

Store Events

So far, Abercrombie’s brand woes at home haven’t infected
the popularity of its model-filled new store events in untapped
markets. The Hong Kong flagship store, which opened this month,
generated more than $1 million in sales in its first five days,
the company said on Aug. 15. Abercrombie is considering
additional locations in China and the Middle East.

Still, in a hyper-connected world, it won’t take long for
Abercrombie’s fading cool to become apparent to shoppers in
Dubai and Shanghai, said Lindstrom.

The company shows no signs of changing its brand message. A
page laying out Abercrombie’s capital-allocation philosophy in
an Aug. 15 investor presentation features a photo of two barely
clothed teens making out.